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MGM Mirage Essay

Introduction of the Company

MGM Mirage is one of the largest gaming industries in the United States and specifically Las Vegas, Nevada. The two people responsible for the start of this empire are Kirk Kerkorian and Steven Wynn. Kirk Kerkorian opened up the first MGM Grand in Las Vegas, Nevada in 1973. Steven Wynn moved to Las Vegas in 1967 and after investing in land on the strip he later opened up the Mirage, followed by Treasure Island and the Bellagio. The MGM Mirage was created during the merger in 2000, and Steven Wynn is no longer affiliated with this company. Since this merger, MGM Mirage has grown and acquired numerous other properties. Currently MGM Mirage acts as a holding company and conducts operation through its wholly owned subsidiaries. The MGM Mirage owns many of the large hotels and casinos on the Las Vegas strip, all which provide restaurants and some the largest entertainment in the world. In 2006 MGM Mirage had $7 Billion in revenues and $600 Million net profits.

Mission Statement

MGM Mirage’s mission statement that is posted on their website is “Our mission is to deliver our winning combination of quality entertainment, luxurious facilities and exceptional customer service to every corner of the world in order to enhance shareholder value and to sustain employee, customer and community relationships.” The mission statement that is stated in the text book is “The resorts and casinos of MGM Mirage are some of the most famous in the world, widely credited for establishing a new generation of excitement in Las Vegas! Our 24 destinations are renowned for their winning combination of quality entertainment, luxurious facilities and exceptional customer service. Our dedicated staff of over 70,000 employees are committed to providing an unsurpassed experience for every one of our guests. We are actively expanding our presence globally, with potential developments in a number of domestic and international markets. At MGM Mirage, we are still striving together to deliver our enticing blend of entertainment to every corner of the world.”

1. Leveraging Brand Name and Skills

Some companies are very large and have powerful brand names that allow them to control their name and talents to other businesses for a fee. In some case the brand allows a company to avoid all the capital expenditure issues involved in building a brand property or product. Therefore, the brand earns a pure profit from the enterprise.

2. Domestic Tourism

A lot of international travel my be cut back to due recessions and economic hardships, but tourists may be willing to travel domestically, some of the hot spots will include Las Vegas and Hawaii

3. Retired Population

As the number of retirees increases, so will the demand for older aged activities and products. Mobile vehicles, which are popular amongst retirees, should see a gradual increase over time. Casino stocks and leisure activities, such as boating will also see an increase. It also increases the demand for retirement services from health care to money management.

4. Emerging Profits

China is one of the largest producers for good throughout the world, and with the economy constantly growing; they will need more equipment and supplies from around the world. Almost all large industrial companies should benefit from China and other countries growth.

5. Emerging Markets

Demand from emerging markets is helping growth and margins. Emerging markets create new opportunities to expand products from the developed world. Paper products, computer services and other industries will all benefit as emerging countries increase demand for industrial and agricultural products.

6. Airline Cuts

Airlines might cut down on services to Las Vegas and other vacation destinations if the economy doesn’t recover quickly. This would hurt tourism and revenues on the Las Vegas Strip. With less people traveling it becomes more expensive for airlines to fly back an forth to destinations.

7. Government Intervention

Government intervention could put downside pressure on the stock. Possible government intervention increases risk, because the government is a big customer and has a history of making adverse changes to the operating ability of companies in every industry. A government regulated industry increases political risk, because government actions may not be in the best interest of citizen of that particular country. Governments are usually inefficient with spending money. Regulations are meant to protect the environmental and consumers. They take the form of permits, package, etc Summary – The weighted average of the opportunities and threats in the chart above is a 14. Since this amount is much larger than 2.5, I would consider this to be a favorable situation.

1. Brand Name

Strong brand name helps to increase margins by charging premium prices for goods, because customers perceive a higher standard of quality from companies with strong brands. A strong brand name may also help to support the stock price, because people will associate a strong brand with a strong stock.

2. Geographically Concentrated Assets

When assets are geographically concentrated, they are subjected to additional risk that those locations may be under political duress or natural disasters. Many companies rely on the United States for the majority of their revenue.

3. Continuing Growth

MGM Mirage is currently planning a six billion dollar, sixty-six acre construction project with EE&K Architects. The project is called ‘city center’ and it is located right on the Las Vegas strip. This project will consist of building new hotels, resident buildings, as well as retail, dining and entertainment. MGM plans to complete this project by 2010.

4. Competition Within

MGM Mirage faces competition within its own brands of hotels and casinos. Since they own so many of the hotels on the Las Vegas strip they are constantly competing with itself for the same customers. MGM Grand Las Vegas, the Bellagio, and The Mirage all compete for the same high-end customers.

5. Low Bankruptcy Rate

There is a low chance of bankruptcy because MGM Mirage has no short-term debt, they also own about half of the hotels and casinos on the Las Vegas strip.

6. Government Regulation

The gaming industry is heavily regulated by the states and other governments. In the United States, individuals must first pass laws legalizing gambling, and then they can set up some form of regulatory commissions to oversee gambling activities. The weighted average of the strengths and weaknesses in the chart above is a 2.6. Since this amount is greater than 2.5, I would consider this situation to be favorable.

Potential development of substitute products

Porter’s Five Forces Model

Bargaining power of consumers

Potential entry of new competitors
Rivalry among competing firms

Bargaining power of suppliers

1. Rivalry among competing firms

The industry of entertainment, including hotels, restaurants, gaming and casinos, is definitely involved heavy competition. It is an industry that is growing at a constant rate in different cities, states and even around the world. Some of MGM Mirage top competitors include Harrah’s Entertainment Inc., Caesars Entertainment Inc., Mandalay Resorts Group and the Las Vegas Sands Corp. Mandalay Resort Group is one of the smaller corporations and competitors in the industry; MGM Mirage has proposed an offer to buyout Mandalay Resort Group which could increase annual revenues. The Las Vegas Sands Corp. owns the Venetian, which is a direct competitor of the Bellagio, just one of the resort casinos owned MGM Mirage. The switching costs for this industry are both high and low.

When there are high switching costs it is based on how well a guest views the customer service, such as comps to upgraded rooms, free meals, and other included amenities. These comps distract the guests from going to other resort casinos hopefully resulting in returning customers. There are low switching costs involved due to the fact that the resort casinos are located mainly on the Las Vegas strip. This makes it easier for the customers to migrate from one resort casino to another. The resort casino industry has high exit barriers due to the difficultly and high cost when getting out of the business.

2. Threat of New Entrants

The threat of new competition for this industry is very low. In order for new competition in this market, especially in Las Vegas, a tremendous amount of capital is necessary. MGM Mirage’s success and profitability is directly related to the riskiness and constraints of entering into the industry. With an economy as large as the gaming and casino industry, new entrants must enter with a large capacity, facing the possibilities of the space not being utilized. Existing relationships between the firms and suppliers creates a barrier to new firms wanting to enter the industry. Some of the legal barriers include state regulation and liquor licensing, zoning and Nevada gaming commission.

3. Threat of Substitute Products

The threat of substitute products is low in this industry because the different resort casinos are not affected by the substitutions. For someone who does not have the time or money necessary when traveling to Las Vegas or overseas, there are a number of entertainment areas and services where the exciting pleasure of gambling remains available. Some of the most popular substitutes consist of playing the lottery, going to horse races and online casinos. The lottery is probably the easiest and most convenient way for a person to participate in gambling. Since the gambling world is constrained to those 21 and older, the lottery is a way to pull in a younger crowd. Those that enjoy the thrilling environment of casinos would most likely find pleasure in going to the horse races. Online casinos are a readily available source for people that appreciate a wide variety of games.

4. Bargaining Power of Buyers

The two main determinants of the bargaining power of buyers are price sensitivity and relative bargaining power. Both price sensitivity and relative bargaining power are low for this industry. Price sensitivity is going to be based solely on the prices of the hotels, not the casino, since the actual casino is not competing on price. The sensitivity of price to the buyer will be determined by the wealth and personal taste of the customer. A wealthy customer will often choose an expensive hotel when luxury and customer service are of high importance. On the contrary, if a customer is there solely to enjoy the casinos, a cheaper hotel would be suitable. When it comes to the relative bargaining power of the buyer, negotiating a certain price with the actual hotel will be difficult to achieve. However, there are online discount websites, such as Hotels.com, who can help lower the cost for the buyer.

5. Bargaining Power of Suppliers

In this industry, the suppliers to the hotels and casinos have a substantial amount of power. This is because the resort casinos can only choose from a small selection of suppliers. International Gaming Technology Inc. is one of the main manufactures and distributors to all the casinos where gaming is legal. This company supplies the casinos with various computerized gaming machines and technology systems. Since the products needed to run the casinos are very crucial for this industry, MGM Mirage’s ability to negotiate with the supplier is limited.

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